What happened to the professional indemnity insurance market?
Brokers and Clients alike are currently scratching their heads wondering what happened to the once plentiful professional indemnity insurance market. For years customers have been enjoying record low pricing in this policy class spurred on by excess capacity, appetite, and competition. But what happens when this all abruptly stops? Well we are about to find out.
To set the scene if a client approached my brokerage even 6 months ago seeking professional indemnity insurance we would be able to take down their information and convey that to a panel of insurers who would more often than not provide a quote for that business. Not only were we likely to receive a quote from most if not all insurers, those terms would be well priced aka cheap and would be with a low excess and very few if any exclusions. This was great for consumers who had quick access to quality coverage at very affordable rates. Note I’m defining very affordable based on my experience and own risk evaluation and as someone who doesn’t have to pay the bill. I’m also basing this on the fact that some clients were paying less last year than they were paying for the same cover 10 years ago.
Fast forward to today where it seems a large amount of occupations are being met with resistance from almost all insurers. Capacity and appetite have evaporated into thin air. Excess and policy exclusions have exploded. And pricing, should you be lucky enough to receive a quote has noticeably risen. Examples are constantly coming through of halved policy limits costing now twice as much for certain occupations. As well as certain occupations that are now no longer insurable anywhere in the world. Financial Planners managing discretionary trusts I’m looking at you.
Who’s to blame for all of this? A very loaded question asked by clients that are being impacted. The easy answer would be to blame the legal fraternity for shifting Australia towards a North America litigious type society. To a certain degree this has without doubt impacted and must take some blame, but certainly is not the only reason. Insurers themselves need to carry some of the blame for continuing to ignore warning signs and failing to correct earlier in a more subtle way. Sacrificing the bottom line to support top line growth ambitions is not sustainable and was never going to be successful. But a real dark horse in the blame game are the gatekeepers doing the selling and marketing of insurance to the consumer. Like many commercial insurance options now adays the policy wordings have become quite homogenised. This has left price being the main comparison conveyed to customers by gatekeepers in the sales process. It would be hard to imagine or believe any broker that at some point in their career has not made a recommendation based on price. The message I am trying to get across here is this issue just didn’t happen overnight. It’s been coming for some time and fuelled ultimately by the masses.
Could this be driven by covid? In my opinion no. I think this is an issue that was due to bubble up regardless of the mess that is covid. Fellow insurance brokers I speak with often comment on professional indemnity being too cheap. And it was to be expected that some day a correction was going to happen. But I don’t think many would’ve predicted the sharp degree of correction we are currently seeing. Covid to a certain extent provides a convenient excuse and great cover for some insurers to go harder and quicker with their correction than they would’ve if the pandemic not occurred. Such is life.
Before concluding it’s worth pointing out that professional indemnity is not the only class of insurance facing these problems. My broker colleagues will be quick to point out high risk property Insurance has faced these challenges for perhaps the last few years. And that higher risk public liability insurance is now transitioning down the same rabbit hole.
So, what can be done? And how long will this last? I don’t think anyone knows to be perfectly honest. In terms of what can be done hopefully the corrections currently put in place are sufficient to create a sustainable market long into the future. And over time reasonably priced capacity can return particularly to those who need it the most. Putting a timeframe on this is tricky but if you were betting on an outcome most likely it would be years not months away. To that end be thankful for the terms you can get. Treat them like gold. And come to grips with the fact that some risks are just uninsurable for the foreseeable future. Enjoy.